In re Satya Dev Bommireddy (GST AAAR Telangana)
The Authority for Advance Ruling passed its order and denied the Input Tax Credit on services of purchase of under construction commercial property received by the appellant for utilizing the same for payment of GST on supply of output service i.e., lease of immovable property. Further the authority ruled that Clause 2(b), 5(b) of Schedule and Section 17(5) (c) are different and distinct provisions under the Act.
AAAR find that the following issues are required to be examined in the subject appeal:-
1. Whether the services availed by the appellant fall under Clause 5(b) or Clause 6(a) of Schedule II of the CGST Act, 2017.
2. Whether the provisions of Section 16 (1) or Section 17(5) (c) is applicable with regard to Input Tax Credit.
Section 16 provides for availment of ITC subject to certain conditions and procedures to be followed by the assessee. Whereas, such availment is restricted under Section 17 and various kinds of supplies/conditions are covered. In view of the above judgement, it is pertinent to understand the intent of legislation in framing laws and enactments. It is natural to the corollary that every rule has an exception. The Act, has clearly and distinctly spelt the provisions under separate sections as to who is eligible to avail and what conditions such availment is restricted or denied. Therefore, even though a general condition is prescribed under Section 16 of the Act, for availment of ITC, specific exemptions or disallowance cannot be overlooked or ignored merely because one provision allows it. Section 17(5)(c) clearly specifies that ITC is allowed on input of ‘works contract’ only if the output service is also works contract. In the instant case, the output service provided by the appellant is leasing/renting of immovable property. As such input tax paid on supply of works contract cannot be availed by appellant for payment of tax on supply of renting of immovable property.
Further, the AR himself has clearly mentioned that notification and clarifications issued by board pertains to ITC being available to the contractor for the sale of under construction complexes. The present case doesn’t pertain to applicability of ITC to the contractor, constructing the commercial complexes, but to the buyer of such constructed complexes. Hence, the applicability of principles of contemporanea expositio and being bound by rules of executive estoppels doesn’t arise in this case.
From the above, the case laws relied upon, do not come to rescue, in as much as they are against the submissions made by the appellant as discussed above. The contentions of the appellant are not valid in as much as, Para 5(b) of Schedule II and Section 17(5)(c) are two different and distinct provisions of CGST Act, 2017, operating in their assigned spheres as held by AAR and discussions ibid. Further, we find that the discussions of AAR with regard to Para 2(b) of the Schedule II, Section 17(5)(d) are appropriate. As such the appellants are not eligible to take credit of tax paid on inward supply of works contract service.
The appellants are not eligible to take input tax credit of GST paid on supply of works contract service for payment of GST on their output service i.e., Renting of immovable property.
Read AAR Order: GST: Section 17(5)(c) restricts ITC on works contract services
FULL TEXT OF THE ORDER OF AUTHORITY FOR APPELLATE ADVANCE RULING, TELANGANA
1. In terms of Section 102 of the Telangana Goods and Services Tax Act, 2017 (TGST Act, 2017 or the Act), this Order may be amended by the Appellate authority so as to rectify any error apparent on the face of the record, if such error is noticed by the Appellate authority on its own accord, or is brought to its notice by the concerned officer, the jurisdictional officer or the applicant within a period of six months from the date of the order. Provided that no rectification which has the effect of enhancing the tax liability or reducing the amount of admissible input tax credit shall be made, unless the applicant or the appellant has been given an opportunity of being heard.
2. Under Section 103 (1) of the Act, this Advance Ruling pronounced by the Appellate Authority under Chapter XVII of the Act shall be binding only,-
(a) On the applicant who had sought it in respect of any matter referred to in sub-Section (2) of Section 97 for Advance Ruling;
(b) On the concerned officer or the jurisdictional officer in respect of the applicant.
3. Under Section 103 (2) of the Act, this Advance Ruling shall be binding unless the law, facts or circumstances supporting the original Advance Ruling have changed.
4. Under Section 104 (1) of the Act, where the Appellate Authority finds that Advance Ruling pronounced by it under sub-Section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such Advance Ruling has never been made.
Subject: GST – Appeal filed by Shri Satya Dev Bommireddy, Villa 33, Lalitha Bloomfield, Khajaguda, Nanakramguda Rd, Hyderabad 500008 under Section 100 (1) of TGST Act, 2017 against Advance Ruling TSAAR Order No.21/2021 dated 30.09.2021 passed by the Telangana State Authority for Advance Ruling -Order-in-Appeal passed – Regarding.
1. The subject appeal has been filed under Section 100 (1) of the Telangana Goods and Services Tax Act, 2017 (hereinafter referred to as “TGST Act, 2017” or “the Act”, in short) by Shri Satya Dev Bommireddy, Villa 33, Lalitha Bloomfield, Khajaguda, Nanakramguda Rd, Hyderabad 500008 (hereinafter referred in short as “the appellant”). The appellant is registered under GST having GSTIN number 36ASEPB8739M1ZB, as an individual engaged in the activity/supply of leasing out commercial premises for earning lease rental income. The appeal is filed against the Order No.21/2021 dated 30.09.2021 (“impugned order”) passed by the Telangana State Authority for Advance Ruling (Goods and Services Tax) (“Advance Ruling Authority” / “AAR” / “lower Authority”).
Brief Facts:
2. Shri Satya Dev Bommireddy, Villa 33, Lalitha Bloomfield, Khajaguda, Nanakramguda Road, Hyderabad 500008, having GSTIN number 36ASEPB8739M1ZB, is an individual engaged in the activity/supply of leasing out commercial premises for earning lease rental income.
3. The Appellant in furtherance of his business, along with his spouse, jointly purchased an under construction commercial immovable property admeasuring 18,833 sq.ft. in 11th Floor in ‘Sohini Techpark’ in Sy.No. 142, Nanakramguda Village, Serilingampaly Mandal and Municipality, Ranga Reddy District, Hyderabad, along with 19 car parking spaces, from Sohini Developers LLP for a consideration of Rs.13,91,98,750/-. The Appellant, along with his spouse initially entered into an Agreement of Sale dt. 29.11.2018, and discharged consideration from time-to-time. Pursuant to the receipt of the entire consideration, the Vendor executed a sale deed which was registered on 17.08.2019 as Document No.14394/2019 with Joint Sub-Registrar, Ranga Reddy. Thus, there is an indivisible composite purchase contract between the parties for the sale of the under construction commercial unit along with transfer of undivided and unspecified share in land.
4. Since a part of the consideration, i.e. Rs. 6,95,99,375/- towards the purchase of the under- construction commercial immovable property was paid by the Appellant before the issuance of completion certificate by the competent authority, as per Clause 5(b) of Schedule II of the CGST Act, the Vendor levied GST @ 12% on the consideration of a sum of Rs.83,51,925 towards the Appellant’s share of the GST and issued a taxable invoice dated 15.07.2019. Tax remitted by the Appellant to his Vendor was reflected as inward supplies in the Appellant’s GSTR-2A for the month of July 2019.
5. Upon the receipt of the Occupancy Certificate from the competent authority on 26.07.2019, the Appellant leased out the above said premises to a Lessee vide Lease Deed dt. 19.08.2019. Under the terms of the said Lease Deed, the Appellant is to receive a monthly rental sum of Rs.5,17,908/-, in addition to GST @ 18% on top of it, which amounts to Rs. 93,223/-. The Appellant has been receiving the said lease rentals since then and has been regularly issuing tax invoices for the same.
6. The Appellant has declared the lease rentals received by him from the month of August 2019 onwards in the GSTR-3B returns for the relevant months. Since the Appellant has paid input GST at the time of purchasing the under-construction commercial immovable property, and since the Appellant is utilizing the same property with improvements towards providing output supply of lease services, the Appellant is claiming input tax credit of the tax paid at the time of purchasing the immovable property in the GSTR-3B returns, since August 2019.
7. The appellant filed an application seeking Advance Ruling with regard to the following :
7.1. The GST paid for the purchase of the under construction of commercial premise should be allowed to be claimed as input tax credit since the Appellant is providing output supply of leasing out the same immovable property which is in the course of furtherance of business.
7.2. The appellant in his application before lower authority raised the interpretation of statute with regard to Clause 5(b) of Schedule II of the CGST Act, and its relevance to Section 17(5)(c) or 17(5)(d) of CGST.
8. On examining the submissions of the appellant, the lower authority framed following questions :-
1. Given that the supply of under construction of immovable property is specifically defined as a separate and distinct service under clause 5(b) of Schedule II of CGST Act, can the same be treated to be referring to either the supplies or transactions described in 17(5)(c) or 17(5)(d) of CGST?
2. Given that the supply of lease of immovable property is specifically defined as a separate and distinct service under clause 2(b) of Schedule II of CGST Act, can the same be treated to be referring to either the supplies or transactions described in 17(5)(c) or 17(5)(d) of CGST?
3. Given that the Applicant is in the business of lease of immovable property, does the term “works contract services when supplied for” in s.17(5)(c) of CGST Act refer to output supply of lease of immovable property or to the input receipt (purchase of under construction commercial immovable property) of the Applicant?
4. Is supply of “under construction commercial immovable property” under an indivisible contract without explicit purchase of goods and/or services therein, a contract of “works contract” within the meaning of s.17(5)(c) of CGST Act?
5. Does the term “Goods or Services or both received” in s.17(5)(d) of CGST Act refer to output supply (lease of immovable property) or to the input receipt (purchase of under construction commercial immovable property) of the taxable person (Applicant)?
6. Does the term “for construction of an immovable property on his own account” in s.17(5)(d) of CGST Act refer to output supply (lease of immovable property) or to the input receipt (purchase of under construction commercial immovable property) of the taxable person (Applicant)?
7. If the term “Goods or Services or both received” in s.17(5)(d) of CGST Act refer to input received, then can the meaning of the term “for construction of an immovable property on his own account” in s.17(5)(d) of CGST Act include the business of the Applicant herein, i.e. for the lease of immovable property?
8. Can purchase of “under construction commercial immovable property” under an indivisible contract without explicit purchase of goods and/or services therein, be termed as a contract for supply “for construction of an immovable property on his own account” within the meaning of s.17(5)(d) of CGST Act, given that the business of the Applicant is lease of immovable property and not construction of immovable property?
9. Regardless of its applicability to the case of the Applicant herein, given the numerous clarifications and notifications by the Dept of Revenue that clearly states that input credit is available for the sale of under construction commercial complexes sold before the issuance of the completion certificate, is not the Authority now precluded from taking a different stand?, since:-
(a) it is against the principle of contemporanea expositio and
(b) they are bound by such executive constructions as well as rules of executive estoppel.
10. Is not purchase of “under construction commercial immovable property” under an indivisible contract without explicit purchase of goods and/or services therein, a valid and legitimate input required for the business of the Applicant i.e. lease of immovable property?
11. Given that the Applicant’s Vendor (Sohini Developers LLP) has taken the input tax credit of the GST paid by the Applicant, what specific law/rule prevents the flow of that tax and excludes the Applicant from doing the same against the GST received for leasing of his immovable property?
12. Is the Applicant eligible and entitled to claim input tax credit of GST paid to his Vendor for the purchase of under construction commercial immovable property, given he used the same to provide the supply of lease of commercial property, and adjust the same against the rental GST to be paid by him for the supply of lease of immovable property?
9. The lower authority, examined the submissions made by the Appellant and Vide the impugned order, the Advance Ruling Authority had given the following advance rulings:
Advance Ruling
